Meru Networks (MERU) Stock Soaring on Fortinet Acquisition

NEW YORK (TheStreet) -- Shares of WiFi networking company Meru Networks (MERU) are higher by 14.75% to $1.60 on heavy volume in mid-morning trading on Wednesday, after announcing it is being acquired by cyber security solutions provider Fortinet Inc. (FTNT) for approximately $44 million.

So far today, 4.37 million shares of Meru Networks have exchanged hands as compared to its average daily volume of 161,000 shares.

"The combination of Fortinet and Meru is expected to strengthen our position in the overall enterprise wireless market, addressing the requirements of CIOs to provide secure, uninterrupted connectivity for their highly mobile end-users," Meru Networks CEO Dr. Bami Bastani said in a statement announcing the deal.

Fortinet will pay $1.63 per Meru Networks share and the companies expect transaction to close during the 2015 third quarter.

Shares of Fortinet are up by 0.28% to $39.40 this morning.

Separately, TheStreet Ratings team rates MERU NETWORKS INC as a Sell with a ratings score of D-. TheStreet Ratings Team has this to say about their recommendation:

"We rate MERU NETWORKS INC (MERU) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been a generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

MERU's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 61.71%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.

MERU, with its decline in revenue, underperformed when compared the industry average of 2.8%. Since the same quarter one year prior, revenues fell by 15.4%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

The gross profit margin for MERU NETWORKS INC is rather high; currently it is at 61.52%. Regardless of MERU's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MERU's net profit margin of -46.14% significantly underperformed when compared to the industry average.

MERU NETWORKS INC has improved earnings per share by 5.7% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, MERU NETWORKS INC reported poor results of -$0.89 versus -$0.57 in the prior year. This year, the market expects an improvement in earnings (-$0.29 versus -$0.89).

The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Communications Equipment industry average. The net income increased by 0.3% when compared to the same quarter one year prior, going from -$8.06 million to -$8.04 million.